Opinion: Chinese Currency Becomes Focus of Trump's Trade War

The continuing trade war with China is leading both economies into uncharted and potentially dangerous waters. Image: AP/Getty/Composite: Brad Howard

The ASX in Sydney on Tuesday, 6 August 2019. Picture: Steven Saphore/AAPSource:AAP

The Australian share market is expected to open higher after Wall Street clawed back some of its losses of the previous day.

The SPI200 futures contract was up 47 points, or 0.74 per cent, at 6,437.0 at 0700 AEST, suggesting an early bounce for the benchmark S&P/ASX200 on Wednesday.

The Aussie dollar is buying 67.62 US cents from 67.83 US cents on Tuesday.

In the US, stocks closed broadly higher Tuesday as Wall Street regained its footing a day after the market had its biggest decline in a year.

The bounce pushed the Dow Jones Industrial Average more than 300 points higher and snapped a six-day losing streak for the market, though the benchmark S&P 500 recouped only a little more than a third of the losses from Monday.

China’s decision to stabilise its currency put investors in a buying mood Tuesday.

News that China allowed its currency to depreciate against the US dollar to its lowest level in 11 years sparked Monday’s steep stock market sell-off.

The move helped allay some of the market’s jitters over the escalating dispute between the world’s largest economies at a time when investors are anxious about falling US corporate profits and a global economy that’s showing signs of slowing.

“We’re getting a nice move here, but if you look at what the tone of the market might be for the next few days it still could be under some pressure,” said Jeff Kravetz, regional investment director for US Bank Wealth Management.

“Right now investors are quite nervous and the reason for the nervousness is not only the trade issue, but we’re also seeing weakening economic data, not only here, but overseas.”

The S&P 500 index rose 37.03 points, or 1.3 per cent, to 2,881.77. The index dropped 3 per cent on Monday, its worst loss since December.

The Dow climbed 311.78 points, or 1.2 per cent, to 26,029.52. The Nasdaq composite gained 107.23 points, or 1.4 per cent, to 7,833.27. The Russell 2000 index of smaller companies picked up 14.67 points, or 1 per cent, to 1,502.09.

Stock indexes in Europe finished sharply lower.

Investors have grown more nervous about the impact that the trade war between the US and China could have on the economy and corporate profits. Those concerns have grown as the conflict heated from a simmer to a boil last week, even as both sides resumed negotiations.

But China’s decision to allow its currency to stabilise Tuesday suggests Beijing might hold off from aggressively allowing the yuan to weaken as a way to respond to US tariffs on Chinese goods.

The Australian stock market lost $86 billion on Tuesday. Picture: Saeed Khan/AFPSource:AFP

Tech stocks accounted for a large share of the gains. Picture: Richard Drew/APSource:AP

That offered some hope that the sides might try to keep the situation from escalating further. “That’s a big part of why markets are not down big again today,” Mr Kravetz said.

Technology stocks, which bore the brunt of Monday’s sell-off, accounted for a big share of the market’s gains Tuesday.

Apple and Microsoft rose 1.9 per cent. The companies get significant revenue from China and have been highly sensitive to swings in the ongoing trade dispute. Financial companies also helped lift the market. Wells Fargo gained 1.7 per cent and Bank of America rose 1.2 per cent.

A government report suggesting a cooling US job market kept bond yields in check after an early gain. The yield on the 10-year Treasury briefly rose to 1.77 per cent, but then declined to 1.72 per cent, down from 1.73 per cent late Monday.

Companies are in the final stretch of the latest round of quarterly earnings reports, and results haven’t been as bad as initially feared, though still down from year-ago levels.

Profit for companies in the S&P 500 is now expected to contract by roughly 1 per cent. That’s better than the nearly 3 per cent drop expected earlier.

More than three quarters of the S&P 500 have reported financial results. International Flavors & Fragrance tumbled 15.9 per cent after the company trimmed its forecast following a disappointing earnings report.

Take-Two Interactive Software jumped 8 per cent on a surge in sales of Grand Theft Auto and other popular video games. The company, which also makes the Red Dead Redemption games, beat Wall Street’s fiscal first quarter profit forecasts and gave investors a surprisingly good sales forecast for the current quarter.

Novartis fell 2.8 per cent after the Federal Drug Administration disclosed that it is reviewing the accuracy of data on Zolgensma, a drug for treating spinal muscular atrophy in children. Novartis is the parent company of AveXis, which makes the drug.